Weekend DOL Blotter - 7/27/2008

Once again, the EBSA was hard at work last week protecting America's pensions. Two new cases were announced: One case involved North Valley Precision Products of Reno, Nevada, where the alleged misuse of the plan's assets resulted in 12 former employees being unable to access their retirement plan accounts.

The suit, filed in the U.S. District Court for the District of Nevada, alleges that the company violated the Employee Retirement Income Security Act (ERISA) when $26,506 in plan assets were transferred to a corporate account and used for non-plan expenses. The company also failed to appoint a successor to administer the plan after it ceased doing business in 2006.

The suit seeks to restore any losses to the plan that resulted from the misuse of the plan assets. The suit also seeks to remove the company as a fiduciary and appoint an independent fiduciary to administer the plan. The independent fiduciary will be responsible for terminating the plan and distributing the assets to eligible employees and beneficiaries.

“This case demonstrates the department’s commitment to taking action to protect the benefits promised to workers,” said Billy Beaver, regional director of the Labor Department’s Employee Benefits Security Administration (EBSA) office in San Francisco. “Plan participants have been unable to access their funds – money they’ve counted on for their retirement. We hope that, through this action, these workers and their families will have access to their retirement savings.”

North Valley Precision Products manufactured sheet metal boxes used for gaming machines and medical devices.

The second case, where a court order had been obtained by the DOL in which two officers of defunct New York City and Santa Monica, California-based textile companies American Fabrics Co. and Beverly Trimming Co. agreed to restore $111,260 to the companies’ 401(k) plan to resolve a Labor Department lawsuit.

The suit, filed in the U.S. District Court for the Southern District of New York in December 2006, alleged that the companies, along with plan trustees Richard Haik and Mitchell Ostrover, violated ERISA by failing to remit to the plan contributions and loan repayments deducted from employees’ paychecks between January 2002 and December 2003.

“Trustees of a 401(k) plan have a responsibility to ensure that the assets of the plan are used solely to benefit participants. One of the most important responsibilities is putting money from workers’ wages into their 401(k) accounts on time,” said Bradford P. Campbell, assistant secretary of the Labor Department’s Employee Benefits Security Administration (EBSA).

American Fabrics, which also had operations in Bridgeport, Connecticut, and Bogalusa, Louisiana, ceased operations in the summer of 2006. Beverly Trimming ceased operations in 2004. The American Fabrics Co. 401(k) Savings Plan covered approximately 106 participants from both companies and held $821,139 in assets as of June 30, 2006.

A consent judgment obtained by the Labor Department orders Haik and Ostrover to restore to the plan $111,260 plus lost opportunity costs owed to the plan. The defendants also are ordered to appoint Jacqueline Carmichael of JM Pension Advisory Inc. as the plan’s independent fiduciary responsible for plan management, termination of the plan and distribution of its assets to eligible participants and beneficiaries. In addition, the defendants are permanently barred from serving as fiduciaries to any ERISA-covered plan.